Maryland is a microcosm of many serious problems besetting
America's health care system today. Doctors and patients alike are
losing control, and the number of uninsured persons in the state is
rising. The state's health policy-an incoherent bundle of
politically driven contradictions-is driving up the cost of health
care while artificially hammering down prices. In 1996, for
example, the cost of a hospital stay increased almost twice as fast
as the national average.2 Such regulatory efforts have
further distorted an already profoundly distorted employer-based
health insurance market, giving rise to an explosion of paperwork,
new problems of access and quality, and a rash of unintended
consequences. Yet by mid-February 1998, 85 new health care and
companion bills and 18 mental health bills had been introduced in
the General Assembly.

Maryland's legislators, as well as those in other states, should
ponder well the consequences of such health care micromanagement.
For example:

Officials in Maryland exercise
an unprecedented level of regulatory power over the financing and
delivery of health care services. No fewer than five
regulatory agencies control the state's health care system at a
cost of over $30 million a year.3 This regulatory behemoth was
constructed layer upon layer by the state legislature, but the pace
accelerated after passage of the Health Care and Insurance Reform
Act (H.B. 1359) in 1993 at the height of the national debate on the
failed Clinton health plan.4 State legislators established a
system whose regulatory reach is difficult even for most state
legislators to comprehend. Delegate James Kelly (R-9) described
H.B. 1359 as "the Clinton Plan in miniature."5

Maryland officials deliberately
deny the patient's right to confidentiality of sensitive medical
records. In Big Brother fashion, information on patients'
visits to their doctors and hospitals is being fed into a
government database without their knowledge or consent. As The
Baltimore Sun reported in late 1995, "Hundreds of thousands of
patient records have been collected this year without patients'
knowledge. Experts say Maryland is on the way to having the
nation's biggest computerized health profile of patients and
doctors."6

Maryland leads the nation in
the number of mandates it imposes on the health insurance
market. Blue Cross/Blue Shield recently estimated that the
legislature has imposed at least 42 health care mandates, and
perhaps as many as 54, depending on the nature of the mandate or
the type of health insurance plan targeted. This means that many
Maryland citizens are unable to purchase a benefits package
tailored to their specific health needs. They also are forced to
pay premiums for medical treatments and procedures that legislators
think are medically "necessary," including abortion, chiropractic
services, or in vitro fertilization, whether they want them
or not. Despite the fact that these benefit mandates are driving up
costs sharply, Maryland legislators are proposing even more
mandates. In a further limitation of patient choice, Maryland's
insurance rules are still incompatible with the federal medical
savings account (MSA) program enacted by Congress in 1996.7 More specifically, state
officials have attached requirements to MSAs, over and above the
federal requirements, that make them prohibitively expensive.

Maryland officials exercise a
level of control over health care pricing that is unmatched in any
other state. Maryland is the only state with an agency
that sets the rates hospitals may charge for medical services,
regardless of the market conditions of supply and demand. Besides
having the government fix their rates, Maryland hospitals and
medical facilities, unlike those of many other states, must file a
"certificate of need" (CON) with the state bureaucracy to provide
new or specialized medical services. Remarkably, the bureaucracy
also is poised to impose a government fee schedule on doctors in
the "private" sector that is similar to the federal Medicare fee
schedule.

Health care spending in
Maryland is high. Curiously, Maryland ranks first in
Medicaid payment per child and adult beneficiary.8 And rather than promote
superior private insurance options for working families, the state
legislature is backing Governor Parris Glendening's proposal to
expand Medicaid, a welfare program, to cover 60,000 uninsured
children in those families. The state ranks seventh in spending on
physicians services and 11th in spending on miscellaneous medical
services.9

Maryland's number of uninsured
continues to grow. The state's health care initiatives
have done little to improve the availability of health care for
workers and their families. In fact, the number of uninsured in the
state has climbed from approximately 570,000 in 199210 to over 700,000 today.11

Waste and Inefficiency

While Maryland's enormous regulatory authority is designed to
"control costs," it actually has resulted in massive cost shifts,
distortions in the health care sector of the market, and a rash of
unintended consequences. Worse, Maryland's legislators routinely
impose new mandates on the system-a propensity to regulate that
continues to drive up costs at the expense of the very workers and
families these same legislators represent. The result of this mania
for mandates coupled with a burgeoning bureaucracy has been higher,
not lower, health care costs for employers and employees alike.
Miles Cole of the Maryland Chamber of Commerce has noted, for
example, that a lot of the money spent on enforcing these
regulations could be "better used" elsewhere.12 To compensate for the time,
money, and energy wasted in complying with bureaucratic edicts,
explains Michael Preston, executive director of the state's
professional medical society, "People are doing things artificially
to get around the regulations."13

Likewise, government mandates and the standardization of health
benefits not only are restricting the freedom of choice of
employers, employees, and their families, but also are undermining
competition in the market and driving up the cost of health care
dramatically. According to a recent report by the U.S. General
Accounting Office (GAO), Maryland's benefit mandates add 22 percent
to the cost of a typical health benefits package.14 Not surprisingly, Maryland-based
insurance plans, saddled with state mandates, are at a competitive
disadvantage when competing for the business of federal workers and
retirees in the popular, consumer-driven Federal Employees Health
Benefits Program (FEHBP).15

Sometimes Maryland's regulatory policies are contradictory. For
example, the state adopted a regulation that would reduce Medicaid
payments to a facility caring for the elderly if that facility is
at less than 95 percent of capacity. This rule is designed to
decrease Medicaid costs. At the same time, state regulators are
toughening standards for private assisted living facilities that
care for the elderly in home-like environments. The unintended
consequence is that additional state-imposed regulatory costs make
assisted living facilities more expensive and more out of reach for
a larger number of elderly patients, who then are forced to rely on
Medicaid for nursing home care. Thus, Medicaid costs go up. In
speaking of the plight of private homes, State Senator Philip C.
Jimeno (D-31) observes, "They've provided good quality care all
these years, been affordable, and the owners are scared to death
about the new
regulations."16

The Need for Serious Debate

Health care is a $15 billion industry in Maryland.17 Regardless of who writes the
benefit checks, the money needed to fund the growing bureaucracy
must come from working households in the form of higher taxes and
higher health insurance premiums or lower wages. Many legislators
may have the best of intentions, but they have shown little
knowledge or understanding of the relationship between supply and
demand in the health care market, between the enactment of
mandatory benefits and higher health care costs, or between the
imposition of regulations and the increase in administrative and
premium costs, as well as in the numbers of uninsured. Nor do they
seem to comprehend the impact that their regulatory initiatives
have on the quality and delivery of health care, or the fact that
they are dangerously close to "practicing medicine" with only a
politician's license. Very few legislators seem to recognize that
"Medical decisions shouldn't be made by politicians."18 Said Delegate Michael Busch
(D-30), who serves on the House committee that considers
insurance-related bills: "We've got three doctors, and six nurses
out of 188 legislators. The rest of us got our medical knowledge
from Marcus Welby, M.D. and Dr. Quinn, Medicine Woman."19

Excellent medical care, increased access, and a return in value
for investment can be achieved only by sound policies that rely
less on bureaucratic regulation and more on consumer choice and
price competition in a reformed health insurance market.
Legislators in Maryland and across America can learn what
not to do by examining Maryland's efforts to micromanage
health care through a burgeoning bureaucracy. Instead of adding
more mandates and rules to an already top-heavy regulatory
structure, state legislators should focus on policies that improve
health care opportunities for workers and their families.
Specifically, they should:

1.Implement policies that will reduce the number
of uninsured in the state. Legislators should promote
personal ownership and portability of health insurance by giving
tax credits to middle-income workers and vouchers to low-income
workers so they can buy their own private health plans. In 1992,
House of Delegates Speaker Casper Taylor (D-2) sponsored such a
plan, based on changing the state tax code and securing waivers for
changes in the Medicaid program. It won broad support in the House,
and a similar consumer choice plan could win broad support again
from state legislators and the public.20 Rather than expand Medicaid,
state legislators could apply such an innovative approach to
Maryland's implementation of the federal Children's Health
Insurance ("KidCare") Program and broaden private coverage for
children.

2.Protect the confidentiality of patient records
to ensure that no personal information is transmitted to any public
or private entity without a patient's consent. Personal
medical records should be given at least the same level of privacy
afforded to Maryland's driving records.

3.Reduce costs and replace benefit mandates with
solid catastrophic coverage. Maryland's mandates are
costly and make coverage less accessible for workers and their
families. Scrapping them and enforcing guaranteed insurance
protection against catastrophic illness would give workers and
their families freedom of choice and peace of mind. It would also
be far less costly.

4.Eliminate outdated regulations and dismantle
costly and unnecessary bureaucratic programs.
Counterproductive programs like the certificate of need should be
repealed.21
Central planning with price controls and other cost-shifting
mechanisms undermine quality care and should be abolished.
Dismantling the independent commissions would eliminate
counterproductive intervention in the market and force legislators
to transfer productive functions (such as providing consumer
information) to other established state agencies. Today's rapid
changes in health care make it unlikely that politically appointed
commissions can improve the efficiency and effectiveness of the
private health care system.

HOW POLITICIANS SHAPE THE HEALTH CARE
SYSTEM

Politics, not patient choice, is the driving force in Maryland's
health care system. With the enactment of the 1993 Health Care and
Insurance Reform Act (H.B. 1359), employers and employees in small
businesses are legally unable to design and purchase plans that
best meet their needs or wants. The landmark legislation-with
components that closely resemble President Clinton's failed Health
Security Act-forces Maryland's citizens to buy a
government-mandated package of approved benefits, the Comprehensive
Standard Health Benefit Plan (CSHBP).22 Moreover, under the CSHBP,
those who are self-employed and small employer groups find it
impossible to take advantage of the new medical savings account
(MSA) program enacted by Congress in the 1996 Health Insurance
Portability and Accountability Act (HIPAA), the Kennedy-Kassebaum
bill. The reason: The state's official policy mandates benefits
with lower maximum deductibles than the federally sponsored, less
expensive MSA program allows.

Political decisions have had unintended consequences for doctors
and patients alike. Doctors are becoming demoralized, overly
burdened with paperwork, and disgruntled. Some doctors have chosen
to leave the medical profession; others are forced to become part
of a health maintenance organization (HMO) as their private
practice revenues fail to keep up with gross expenses. Likewise,
private insurers are becoming disenchanted with the highly
politicized regulatory environment in which they are forced to do
business. Private insurance carriers, such as John Alden Life
Insurance (Northstar Marketing Corporation), Time Insurance
Company, and The Principal Insurance Company, have cut back on
health care coverage provided to the small group market or have
left the state.23
With new mandates and additional red tape, the cost of
uncompensated care in Maryland was $408.1 million in 1996.24 And it continues to
grow.

Legislating Good IntentionsDespite the unintended consequences of its policies,
Maryland's state legislature seems unwilling or unable to take
stock of the policy direction of its initiatives, seeing every
problem it creates not as cause for reconsideration, but as an
excuse to add another layer of regulation to the state's health
care system. The passion for health care regulation, a
preoccupation in Annapolis, has not cooled since passage of the
81-page H.B. 1359. For example, during the 90-day session in early
1997, 98 new health care-related bills were introduced in the
Senate and 43 were passed. The House of Delegates considered 103
health care-related bills in 1997 and passed 45. (Some of these, of
course, were companion bills.25) At times, the General
Assembly's schedule of hearings resembled a medical school
curriculum more than a legislative agenda. The annual parade of
bills typically calls for changes in medical treatments or
procedures that sponsors hope to mandate in every private plan.

Both the direction and shape of Maryland's health care policy
are controlled by senior members of the state legislature.26 House of Delegates
Speaker Casper Taylor and Senate President Thomas "Mike" Miller
(D-27) control not only who chairs and serves on what committees,
but also what bills will be sent to those committees for
consideration. As noted, Speaker Taylor in 1992 sponsored a very
different and widely praised consumer-driven approach to health
care reform, grounded in innovative changes in the tax treatment of
health insurance and based on a high degree of consumer choice and
market competition.27 Nonetheless, Taylor has
presided over the creation of today's highly regulatory health care
regime.

The 1993 Health Care and Insurance Reform Act included a small
group reform provision designed to cover firms that have between
two and 50 employees. The concern was that small group employers
could not obtain coverage at affordable rates without excluding
employees with medical conditions. Shortly before consideration of
the bill, the Speaker substantially rewrote the 81-page
legislation, expanding its regulatory reach and magnitude and
establishing the Clinton-style Comprehensive Standard Health
Benefit Plan for private insurance plans in the small group market.
Insurance carriers would be required to offer standardized benefits
at an average insurance rate that would not exceed 12 percent of
the state's average annual wage. In other words, Maryland imposes a
"premium cap" on these plans. In addition, insurance policies would
have to be issued on a guaranteed basis, which meant that no one,
regardless of health status, could be turned down for coverage.
Central health planning would be facilitated by the creation of a
medical care data bank and the collection of medical information on
patients from all licensed health care practitioners in the
state.

The substantially rewritten Health Care and Insurance Reform Act
was dropped on delegates' desks at 11:00 a.m. on April 7, 1993, and
voted on and passed by 4:00 p.m. The Senate followed suit later
that day.28 In
enacting H.B. 1359, Maryland's legislators created the Health Care
Access and Cost Commission (HCACC) and gave it broad regulatory
powers, similar in scope to those of agencies in states like
Washington and Kentucky, both of which "reformed" their health
systems in accordance with Clinton-style legislation.29 H.B. 1359 also included a
provision for the potential development and implementation of a
single-payer, state-controlled health care system if a waiver from
the federal Employee Retirement Income Security Act (ERISA)
regulations could be obtained. (ERISA prevents states from
regulating self-insured plans.)

The high degree of government control of Maryland's health care
system was facilitated by the curious acquiescence of key players
in the private sector-including leading representatives of the
business community and the hospitals, which generally have not
opposed the state's unique hospital rate-setting functions.30 During
consideration of the legislation in 1993, the Maryland Chamber of
Commerce not only supported a government-standardized benefits
package for small firms, but also backed the creation of new
regulatory agencies and the collection of medical information
without a patient's informed consent.

Ignoring Patients' Rights. Maryland has been invading patients'
privacy by collecting sensitive data on every doctor-patient
encounter and hospital treatment (both inpatient and outpatient
encounters). In 1996, it was reported that information on about 40
percent of patients already had been entered into the database.31 It is a great
irony that under a new law passed by the same legislators who
remain unconvinced of the need to protect the confidentiality of
medical records, Maryland citizens have the power to protect the
confidentiality of their driving records, maintained in
computerized data banks at the Motor Vehicle Administration.32

The patient privacy debate has annoyed senior legislators since
passage of the 1993 bill. During the 1997 session, Delegate James
Kelly and 39 cosponsors introduced the Patient's Consent Act (H.B.
834), which would require patients to give their informed consent
before detailed medical information could be entered into the
state's medical care database. Speaker Taylor sent H.B. 834 to the
Environmental Matters Committee, chaired by Delegate Ronald Guns
(D-36), but it failed by a vote of 8 to 9. During the debate,
officials of the HCACC agreed to implement additional privacy
protections, including the coding of doctor and patient names. But
the Medical and Chirurgical Faculty of Maryland (MedChi), the
primary organization for the state's medical profession, argued
that even with coding, the information could be misused and privacy
breached. "Doctors are very fearful and distrustful of state
regulators," said Alex Azar, M.D., president of the medical
society.33

A companion bill on patient privacy introduced by Senator George
W. Della (D-47) was referred to the Senate Finance Committee,
chaired by Senator Thomas Bromwell (D-8), but was held until the
end of the 1997 session. The bill was voted on in committee only
when it was clear that it would not pass. Opposition to the state's
medical data collection policy continued to grow. Supporters of
remedial privacy legislation, ranging from liberal and conservative
civil libertarians to patient advocacy groups and medical
societies, were able to gather 8,000 names in just six weeks during
1997 in behalf of a change in the law,34 but even this intense
petition drive failed to influence the vote in the Senate.

Mandate ManiaMaryland's state legislature has always been a lucrative
target for medical special-interest groups bent on making citizens
buy their services regardless of whether they want or need them.
And since 1993, Maryland has continued to impose benefits mandates.
The result has been rising costs. Delegate Michael E. Busch,
Chairman of the House Economic Matters Committee, realizes this:
"We've driven the costs with mandates through the roof."35 Nationally, health
benefits constitute 9 percent of payroll costs; in Maryland,
however, health benefits make up 18 percent of payroll costs.36 Some legislators,
such as Delegate Michael A. Crumlin (D-25), admit that "Every time
we pass a mandated benefit, I am not sure we legislators know the
true impact on those we're trying to help."37 As Delegate Guns stated,
"Historically, it's what the state has done. We see the hot buttons
and respond to them. We all know that the health care delivery
system is evolving. It's a moving target."38 Adding layers of new rules
has become a recognized legislative procedure. According to
Delegate Marilyn Goldwater (D-16), "There are inequities and
inconsistent regulations across the system, which need to be
updated and reflect current times."39

This environment of intense special-interest politics in the
multibillion-dollar health care industry in Maryland invites
corruption in the system. The temptation for policymakers to abuse
their office and micromanage health care policy to benefit the
competitive position of the special interests that contribute to
their campaigns is great. Recently, for example, State Senator
Larry Young (D-44), chairman of the powerful Senate Finance
subcommittee handling health care legislation, was expelled from
the legislature for using his position to obtain "tens of thousands
of dollars from national health-care companies for private
companies he ran from his Baltimore district office."40 In 1996, lawmakers were
concerned when Governor Glendening "solicit[ed] money from
state-regulated health care groups to fund an international medical
conference."41
According to Delegate Leon Billings (D-18), "The whole political
process is now permeated with a public-private sector relationship
designed to ingratiate the people with the checkbooks with the
decision-makers…. This is just but a modest example of
it."42

THE SCOPE OF THE HEALTH CARE
BUREAUCRACY

Maryland's health care bureaucracy is a hodgepodge of government
departments, agencies, boards, commissions, panels, advisory
groups, and "work groups." Each one has authority to regulate,
restrain, and direct doctors, health practitioners, hospitals,
insurers, and employers. The key state agencies and departments
involved in regulating the financing and delivery of health care in
the state-a $15 billion industry-are:

The Department of Health and Mental
Hygiene (DHMH), which licenses and monitors quality in hospitals,
laboratories, long-term facilities, nursing homes, geriatric and
home health care, any type of health care facility, and HMOs. The
DHMH is responsible for physician credentialing, utilization
review, risk management, the rights of the mentally ill, organ
donations, patient transfers, and the handling of citizen
complaints and investigations. It houses 18 regulatory boards that
govern doctors and medical practitioners, and whose activities are
financed by fees assessed on those practitioners. Over the past two
years, these regulatory boards collected approximately $18 million
more in fees than their operating costs required.43

The Maryland Insurance Administration,
which reviews contracts and rates of life and health insurance
policy carriers, licenses insurance agents and carriers,
disciplines violators, and investigates complaints from consumers
other than those concerning HMOs.44 Since contractual provisions
between employers and insurance companies prevail, workers often
see complaints go unresolved,45 and there is no real consumer
choice in the employer-based system when it comes to selecting a
different carrier.

It is precisely because of this regulatory overkill that
Maryland's health care system is known as the most highly regulated
state health care system in the country. The $31 million annual
cost of this system is levied on Maryland workers and their
families. For example, in 1997, William Jews, executive director of
Blue Cross/Blue Shield of Maryland, reported that 1.4 million of
the company's subscribers alone paid nearly $2.5 million annually
toward the operation of these regulatory agencies.46 The transactional costs in
time, energy, and effort for doctors, hospitals, insurers, and
patients complying with the myriad of rules, regulations, and
guidelines are anybody's guess.

Health Services Cost Review
Commission

Since 1977, the Health Services Cost Review Commission has
operated America's first and longest running hospital rate
regulation program. It is now the only such program in the United
States. Seven part-time commissioners appointed by the governor
meet once a month to carry out the HSCRC's primary
responsibility-fixing hospital rates. In theory, the panel should
make sure that a hospital's total costs are reasonable and
equitable, and that total charges are reasonably related to total
costs. In practice, this means substituting subjective assessments
for prices that otherwise would arise in a normal market.

To monitor inpatient and outpatient hospital activities, audits
are performed annually at each hospital by independent certified
public accountants under commission-prescribed procedures. The
audits include data submitted by the hospitals in annual reports of
revenue, expenses, and volume; annual wage and salary surveys;
statements of changes in building and equipment fund balances; and
quarterly Uniform Hospital Discharge Abstract Data Sets.

The HSCRC has been collecting information on every hospital
admission for more than 20 years. The data include a patient's age,
race, and sex; diagnosis; procedures performed; cost; length of
stay; and insurance coverage. For about eight years, the commission
has collected similar data on outpatient surgery. Regulations
issued in 1996 expanded the database to include data from all
doctors' offices and freestanding clinics not on hospital campuses.
The HSCRC estimates that services from such offices and clinics
amount to about 17 percent of hospital revenue. Interestingly, the
information collected on these services and facilities even
includes data that the Health Care Access and Cost Commission
previously agreed not to collect; opponents of data
collection without the patient's consent believe that this
expansion of the HSCRC's authority is an end run around these
earlier restrictions.47

Fixing Rates by FormulaThe HSCRC prospectively fixes hospital rates. The rate
each hospital may charge is based on a formula that produces a
guaranteed inpatient revenue (GIR) charge per admission. The GIR is
determined by dividing the total inpatient revenue for all
diagnoses at a hospital by the total number of patients and
adjusting the result for inflation and other factors. If the
hospital spends less than its assigned GIR, it has saved money and
will see an increase in discretionary income that otherwise would
not be permitted in the HSCRC rate-setting model. The hospital can
direct these funds to areas it considers to be priorities. Such
rewards are seen as incentives for hospitals to reduce their costs.
If the hospital spends more than its GIR, it will be penalized and
the HSCRC will reduce its GIR for the following year in proportion
to the amount by which the hospital has "overspent."48 The HSCRC also adjusts
hospital rates by taking into account such factors as expenses that
the panel deems to be beyond the hospital's control (such as
uncompensated care costs). Freestanding ambulatory care centers not
associated with hospitals are not included in the rate-setting
process for Maryland hospitals.49

The HSCRC allows hospitals to increase their rates as a "bonus"
if they pursue special programs such as preventive medical
services, community outreach, and education and screening for
cancer, diabetes, and heart disease. This allowance is seen as an
incentive for hospitals to invest resources in these kinds of
programs. Since 1985, 150 hospital-based prevention projects have
been established in the state.50

Not surprisingly, left-leaning politicians and policy analysts
praise this rate-setting policy for its effectiveness in
"controlling" costs. Indeed, according to an analysis conducted by
MedChi, "It has been described as the `third rail' of health care
regulation in Maryland, and it is treated in some circles as a near
article of faith."51 The ideologically faithful
point to the fact that in recent years, according to official
statistics, hospital costs in Maryland have generally fallen below
the national average.

The truth is far more complicated. For example, an essential
factor in assessing Maryland's hospital costs is the rapidly rising
cost of uncompensated care-the dispensing of medical services to
citizens who are unable or unwilling to pay for them. For the most
part, no patient is denied care in Maryland's hospitals because of
need. In 1996, Maryland hospitals dispensed more than $408 million
in uncompensated care, an amount equal to about 8 percent of
patient revenues. The heaviest uncompensated care costs hit Johns
Hopkins Hospital in Baltimore and six other major hospitals that
treat the majority of the state's uninsured residents. Unlike Johns
Hopkins and the University of Maryland Medical System, two of the
nation's premier research institutions, other Maryland hospitals do
not have huge endowments to help cover the rising cost of indigent
care. Nor do they have state or county subsidies or church
affiliation to help them financially. They have to bear the rising
costs of uncompensated care themselves. The uncompensated care
percentage in 1995 ranged from a high of 25.5 percent of revenue at
the University of Maryland Shock Trauma Center in Baltimore to a
low of 1.32 percent at Children's Hospital in Baltimore.52

Driving Up Hospital RatesContrary to proponents' claims, recent figures indicate
that the system is not controlling hospital costs effectively. In
1996, for example, the cost of a hospital stay increased almost
twice as fast as the national average-4.5 percent compared
with a national average of 2.3 percent.53 During the second half of
1997, under the state's complicated price-fixing system, Maryland's
hospitals saw their profits cut in half; during the second half of
1997, 15 out of 52 of the state's hospitals lost money.54

Government price-fixing is always costly. Governments normally
fix prices at levels that are too high or too low; in either case,
officials are endlessly engaged in readjusting these levels to
reflect their idea of what a "fair" or "rational" price is outside
of the market. Because officials thought that Maryland's hospital
rates were too high in 1997, they proposed an adjustment in the
prevailing formula (a correction factor) to reduce hospital rates
by about 4 percent.55 The manner in which the
revised rate-setting formula is to be applied also means that all
hospitals would not be affected the same way.

State regulators first wanted to impose this correction factor
in April 1997, but hospitals warned that the state's downward
pressure on rates would threaten the quality of care and make it
difficult for them to finance needed improvements. A spokesperson
for John Hopkins Bayview Medical Center predicted that the
"correction" could cost the Hopkins medical system tens of millions
of dollars in revenue. Since capital obligations cannot be changed
quickly, rate tightening could force very difficult trade-offs in
standards of care.56

The Maryland Hospital Coalition, which represents two thirds of
the state's hospitals, naturally opposed the new rate-setting
formula. According to coalition representative Peter Parvis, "We
don't think Maryland can be held hostage to the national rate of
growth, because it doesn't reflect what's happening here. You can't
punish an entire industry without a lot more study." The proposed
formula has been projected to cut hospital revenue by about $200
million.57 Because
of pleas from the hospitals, the HSCRC agreed on May 8, 1997, to
postpone the new formula and take another look at the impact of
reductions in hospital revenues.

Because hospital rate-setting takes place outside of the market
forces of supply and demand, the entire process-like the Maryland
health care system in general-has become highly politicized. Under
the proposed formula, hospitals would be pitted against each other:
Some would have their rates reduced, while others would enjoy
smaller rate increases than they otherwise might expect. Meanwhile,
hospitals, both large and small, would be pitted against insurers,
labor unions, and business leaders, such as those represented by
the Maryland Chamber of Commerce. Proponents of the formula point
to record hospital profits and want the commission to control costs
for consumers. But hospital executives fear the climate for
cost-cutting has produced tunnel vision at the expense of quality
care. Chiefs of hospitals, from large urban medical centers to
small rural community hospitals, told the commission that
application of the formula would force hospitals to reduce staff
and cut programs.58

Aggravating this fear is the timing of the new formula, which could
become effective at the same time the state's Medicaid program
switches to managed care-a change that is expected to reduce
hospital profits. Already, Maryland's private-sector HMOs, scouring
for claims they deem to be "unnecessary or inappropriate," are
putting heavy financial pressure on Maryland hospitals. "The
cumulative impact is far greater than the industry can absorb in a
compressed time period," says Ronald R. Peterson, president of
Johns Hopkins Hospital.59

In a normal economy, prices reflect the interaction of supply
and demand. The market price is the competitive price for
comparable goods or services. But prices for hospital services in
Maryland's hospital market bear little relation to normal market
prices (see Table 1). For example, in 1994, Prince George's
Hospital Center charged $13,434 to perform an angioplasty (a
surgical treatment for clogged arteries), while Franklin Square
Hospital in Baltimore charged only $4,492.60 In reporting on this discrepancy and
the pricing practices of 24 other hospitals, a reporter for The
Baltimore Sun correctly noted that, under free-market forces, "Most
people probably wouldn't pay almost $9,000 more for a product than
they had too."61 Wide variances in the
prices of procedures ranging from childbirth to the treatment of
digestive disorders and pulmonary disease and joint replacements
also were reported.62

Government rate-fixing is inherently inflexible and leads to odd
consequences. For example, in 1996, before the legislature passed
the 48-hour maternity stay law, St. Agnes Hospital in Baltimore
offered, at its own expense, to pay for a free second day for
mothers and their newborn infants, whether their insurance would
have covered the extra day or not. Instead of applauding this
effort, the HSCRC said that St. Agnes needed government permission
to offer the mothers of newborns such generosity.63 After a spate of adverse publicity,
the panel approved a revised "fixed price" for St. Agnes which
amounted to a second day of free care for mothers and infants. At
the same time, the HSCRC approved a staff recommendation that St.
Agnes should be penalized for its actions and should not be
eligible for any guaranteed inpatient revenue (GIR) bonus for
obstetrics from February 12, 1996, to February 23, 1996-the period
during which the hospital offered the free second day without the
state's approval.64

The reality is that under government rate-fixing, more hospitals
are "outsourcing" normal hospital functions, including the use of
highly trained registered nurses. By using part-time agency and
contract nurses, they save on the additional employee benefits they
would have to pay if the nurses were full-time staff members. In
some instances, the shortage of nurses and the use of non-full-time
employees contributes to a lack of continuity of care for patients,
even in hospitals offering such specialized care as cardiac care
units for open heart surgery. More hospitals are now using nurse
anesthesiologists supervised by an attending anesthesiologist who
may oversee two to three operating rooms at one time. Some
community hospitals send their sickest patients to larger hospitals
because the larger hospitals are better equipped to treat them.
When only a nighttime emergency room doctor is on staff and an
inpatient's health deteriorates, on-duty nurses must find a doctor
who can come in to give the patient immediate attention, taking
valuable time from caring for other patients and possibly placing
them at risk.

Other states have begun to recognize that removing distortions
in the health care market can restrain costs more effectively than
government regulators can. For example, New York, Massachusetts,
and New Jersey have dismantled their rate-setting boards. Even the
HSCRC has conceded that growth in hospital and health care costs
continues to be a problem.65
Ironically, it points to the historic lack of competition in the
hospital industry as the primary cause of high costs.

Undermining Competition The absence of real market competition in America's
health care system is linked to law and regulation. Most citizens
in Maryland and other states get health care through their
employer-based health insurance in a distorted market in which
there is little real consumer choice and consumers are insulated
from the full costs of their care. In most sectors of the American
economy, the laws of supply and demand, consumer choice, and
free-market competition regulate prices. But this is not true for
health care. Thomas R. Barbera, vice chairman of Mid-Atlantic
Medical Services and a leader in Maryland's HMO industry, has
argued that "If the commission doesn't do better than the open
market, we don't need a regulatory system, and can leave the rates
to competitive forces."66 Remarkably,
the HSCRC itself has acknowledged that greater competition, coupled
with more informed consumers, offers the best hope for controlling
Maryland's health care costs.67 Yet
the state legislature still has not crafted a policy that is even
remotely in accord with this observation.

Health Resources Planning
Commission

The Health Resources Planning Commission, part of the Department
of Health and Mental Hygiene, is made up of 12 members who are
appointed by the governor. Established in 1982 as a body parallel
to the HSCRC, the HRPC's charge is to shape the future of the
state's health care system while balancing costs and access to
care, long-term care, and other health care services. The HRPC lays
out its health policy agenda in its annual State Health Plan, which
is based on data it has collected from various sources with input
from experts in the public and private sectors. The HRPC maintains
extensive databases on long-term care, home health services,
hospice services, and freestanding ambulatory surgery centers. With
data collected by the HSCRC and the HCACC, HRPC makes a projection
of the desirable supply of health care services based on projected
"need" by using methodologies developed from the database. It
constantly refines its projections as the health care system
changes-once again, to "control" costs.

The CON Job Maryland has a certificate of need (CON) law that
requires hospitals and physicians to file an application whenever
they want to bring new medical technologies or facilities into a
community. They must demonstrate to the satisfaction of government
health planners that a need exists for those services and obtain
state approval before implementing them. They must get, in other
words, a certificate of need. This process was developed as a
response to the National Health Planning and Resources Development
Act of 1974, which required states to enact a procedure governing
CONs or face the loss of federal health care funding. Congress
enacted the legislation in 1974 when it believed that regulation,
instead of market forces, was the best way to prevent the costly
duplication of medical services. In 1982, Congress repealed the
penalty for states without a CON program. In 1986, it ended federal
funding for the CON program. Since 1993, 19 states have repealed
their CON programs. Maryland, of course, is not one of these
states.

Today, the HRPC reviews CON applications to determine whether
the proposed private-sector investment reflects an "appropriate"
use of available health resources. To achieve cost containment of
hospital expenses for services provided, the HRPC sought the use of
mergers, consolidations, and closures to (in the jargon of the day)
"right size" Maryland's health care system. However, it is
presiding over the implementation of a process that makes it
difficult, if not impossible, for innovative health care
entrepreneurs to develop and market better technology and
competitive services.

Since the CON process could lead to the denial of permission for
new equipment or facilities, it gives older facilities a virtual
monopoly on special services, especially hospitals that developed
subacute care beds. Restricting supply in this fashion undermines
market incentives to control costs. As Wayne Spiggle, M.D., noted
in his remarks before MedChi's Regulatory Task Force in 1997,
certificates of need have been used to preserve hospital
monopolies.68 And as an attorney
representing physicians who deal with CONs also noted, the process
does not always benefit rural areas; it was used, for example, to
block the expansion of a hospital in rural Berlin, Maryland.69

Hospitals and other medical facilities pay a substantial
compliance cost in the time and financial resources needed to
prepare the CON application. Many hospitals, including some in the
inner city of Baltimore, lack the resources and political clout to
compete for advanced medical technology. For example, some
inner-city and rural hospitals in Maryland have not obtained CT
scanners because community hospitals already have exhausted the
officially determined supply and the state bureaucracy will not
issue more certificates.

The CON policy is also designed to limit state Medicaid costs by
limiting the number of available beds in all hospitals. But by
limiting the number of beds in nursing homes, for example, the
bureaucracy inadvertently increases private care prices for
patients in nursing homes, negatively affecting elderly patients.
Higher private care prices mean that patients, who generally are
elderly and have limited assets, will spend down and become
eligible for Medicaid sooner. For elderly patients, this is
personally disastrous, for it reduces their quality of life and
contributes to a loss of self-esteem and financial assets while
increasing costs to taxpayers. Furthermore, Maryland's elderly
population, like the nation's, is growing rapidly. This fact
implies that any short-term cost savings derived from the CON
process could lead to a net increase in Medicaid costs.

Furthermore, the CON process has done little to solve the
problem of excess hospital capacity. With the shift to managed
care, excess capacity has become an even greater problem. Indeed,
the average occupancy rate is slightly better than 50 percent.70 Thus, Maryland's hospital CON
regulation, like its hospital rate regulation, has contributed to
unintended and somewhat perverse results. Overall, regulation of
the availability of competitive facilities has restricted the
market, reduced quality, and increased costs.

Health Care Access and Cost
Commission

The state legislature established the Health Care Access and
Cost Commission in 1993 by enacting H.B. 1359.71 The commission's nine members are appointed
by the governor with the advice and consent of the state Senate; it
has a staff of 32. Only three members may have any connection to
the policy or management of a health care provider or payer.
Members serve a maximum of two consecutive four-year terms. The
HCACC has broad regulatory authority to develop and carry out new
state health care policies, such as:

The Comprehensive Standard Health
Benefit Plan (CSHBP);

A database on non-hospital health care
services;

Oversight of electronics claims
clearinghouses;

A payment system for all health care
practitioner services;

Practice parameters for physicians and
surgeons; and

Quality and performance measures for
HMOs.

The HCACC is funded by "assessments" (in effect, special taxes)
levied on doctors, hospitals, and insurance companies. Currently,
one third of these assessments is extracted from practitioners and
two thirds from third-party payers. The assessments on payers are
apportioned among two classes: carriers (such as HMOs, insurers,
and nonprofit health service plans) and third-party administrators
registered with the Maryland Insurance Administration. Maryland law
caps the total amount the HCACC can assess at $5 million annually.
The initial $5 million for start-up costs was appropriated from
state tax revenues by the legislature.

Standardizing Health Benefits The HCACC's major initiative has been the development of
the Comprehensive Standard Health Benefit Plan. As of July 1, 1994,
Maryland insurance carriers had to offer the CSHBP to any small
business (with between 2 and 50 eligible employees) choosing to
offer health benefits on a guaranteed issue basis without
pre-existing exceptions after January 1, 1995. Carriers could
underwrite additional benefits, such as group life insurance
coverage, dental insurance, and group disability benefits. In 1995,
small business coverage was extended to the self-employed; in 1997,
it was extended to any type of one-person entity72 and employees of staffing firms or
employee leasing organizations with 2 to 50 employees.73

Building the Government's Database Perhaps the HCACC's most controversial task is the
gathering of personal information for the state's medical care
database without patients' consent. Commission officials say this
database will help them bring health care costs under control by
allowing them to examine costs and by giving purchasers a way to
measure a doctor's performance against government norms. The HCACC
is supposed to publish an annual report describing total
reimbursement for all health care services and for each health care
specialty, the geographic variation in expenditures and utilization
of services, and variations in fees charged by doctors, medical
specialists, and facilities. The database, they claim, also will
enable doctors and hospitals to assess the productivity of their
practices relative to others and provide comparative information on
services by specialty and region. Critics see a different agenda:
an instrument to monitor medical procedures that allows state
officials to control medical treatments.74

Standardizing Electronic Claims Processing The HCACC is also responsible for establishing standards
for the operation of private-sector medical care electronics claims
clearinghouses and electronic health networks. It has been given
broad flexibility to establish regulations for implementing
incentives to encourage the health care market to operate more
efficiently. In 1995, the HCACC concluded that a mandatory approach
based on the licensing of electronic health networks and the
adoption of electronic data interchange by doctors faced
insurmountable obstacles. It developed a strategy based on the
"certification" of electronic health networks and the voluntary
adoption of electronic data interchange by doctors. This approach
tied voluntary participation to such economic incentives as faster
reimbursements for services rendered and less paperwork, which also
would increase payments from insurers.

The HCACC has established a voluntary start to the certification
program for electronic networks in 1996. The HCACC also would
"certify" networks that satisfied its requirements but would not
prevent other electronic health networks from operating in the
state. Certification would be based upon standards developed by the
Electronic Health Network Accreditation Commission, a private
industry group which would police the electronic health networks
and set operating standards based on "best practices." This
arrangement would allow private-sector input in a complex public
policy issue area; however, it also could allow private interests
to become the judges of their own causes with the powerful
instrument of government to advance them.

The HCACC's electronic data interchange regulations impose yet
another government mandate on insurers. To encourage voluntary
certification, insurers must designate at least one certified
network to accept their electronic claims. In 1997, the state
legislature passed a bill to allow the HCACC to delay
implementation until 1999.75 Under its
regulatory regime, the designation requirement would not preclude
companies from dealing with non-certified electronic health
networks, but they must use at least one that is
government-certified. Finally, insurers would be required to submit
an annual progress report covering their claims activity. HCACC
officials see certification as a positive step toward building a
stable health care data infrastructure, which would be modified by
evolving national standards or what corporate and government
experts redefine as "best practices."

Report Cards on Quality Standards The original 1993 legislation also required the HCACC to
evaluate the quality of care and the performance of HMOs. HMO
evaluation involves performance measures according to the Health
Plan Employer Data and Information Set (HEDIS) published by the
National Committee of Quality Assurance (NCQA) and enrollee
surveys. In the future, practitioner surveys also would be
involved. The NCQA accredits the health plans based on 50 standards
that measure performance in quality improvement, physician
credentials, members' rights and responsibilities, preventive
health services, utilization management, and medical records.

A common set of performance measurements was supposed to improve
the quality of HMO care. It was also supposed to give employers and
employees cost information and reports on the quality and
performance of their HMOs. In 1997, the HCACC published its first
report card on the performance of 15 HMOs licensed in Maryland.
Although the report card process generally won the approval of
state officials and health policy analysts,76 consumer use of the information
continues to be limited by the practical inability of most workers
and their families to hire and fire their health insurance
companies.

Fixing Doctor's Fees The 1993 legislation required the HCACC to develop a
payment system for all health care practitioners in the state by
January 1, 1997. This monumental task has been delayed, however,
and a new date of January 1, 1999, has been set by legislation.77 The proposed payment to doctors will
be determined without regard to the market forces of supply and
demand. Three numeric factors will be calculated to determine a
doctor's reimbursement: the "resources" a doctor needs to provide
services relative to other doctors; the "value" of a doctor's
service relative to other health care services; and a "conversion
modifier" to convert the formula to a dollar amount. The
HCACC will establish the factors that determine a practitioner's
resources and the "relative value" of the medical services
provided, based on social science measurements, and periodically
will adjust the conversion modifier downward, thereby cutting
doctors' reimbursements if the state's annual health care "cost
control" goals are not met.

The 1993 statute directed the HCACC to consider the social
science methodology of the federal government's Resource-Based
Relative Value Scale (RBRVS), currently used by the Medicare
program.78 The underlying premise of
this system is that a service has an objective value relative to
other health care services. Through a formula, the government can
convert that value to a dollar amount, and a fair and rational
price can be derived. Under the RBRVS, the Medicare planners' key
assumption is that they can discern how a doctor should be paid by
statistically measuring the "value" of a doctor's "work" by
calculating the time, effort, and skill that goes into providing a
medical service. Yet, from the standpoint of economic theory, such
an updated version of the old labor-based theory of value makes
little sense. In the words of Stuart M. Butler, vice president of
The Heritage Foundation, "The idea of objective value and prices is
entirely rejected in market economics, which forms the basis of
western economies. Instead, flexible prices, reflecting supply and
demand amid the differing subjective valuation attributed to goods
and services by individuals, is key to efficient production,
distribution and exchange in an economy."79

Maryland's proposed government fee system for doctors, like many
other regulatory initiatives, is designed to control health care
costs. When it is fully developed, it will be used as the complex
Medicare fee system is used: to measure the volume and relative
cost of medical services in order to establish a mechanism for
adjusting payments to doctors and to serve as a basis for a
utilization analysis by government-selected experts, businesses,
insurers, and HMOs. Thus, it will be used as the basis for payments
made to doctors by insurers and HMOs. For purposes of its
application, "practitioners" would include all licensed health care
practitioners such as physicians, dentists, social workers,
therapists, pharmacists, and advanced practice nurses.

The HCACC set up a Payment System Advisory Committee (PSAC) to
oversee the development and implementation of this fee system. The
PSAC is comprised of 24 members, including physicians and other
health care practitioners as well as representatives from the
insurance industry, employers, labor, and the public. In 1995, the
HCACC contracted with the Center for Health Economics Research
(CHER), a Massachusetts-based health policy research firm, to
recommend the design of the new payment system. The CHER has
extensive experience with the application of the Medicare RBRVS to
state agency programs. Initially, the proposed payment system would
be imposed primarily on physicians and certain other "limited
license practitioners," including doctors of optometry, podiatry,
and chiropractic medicine. Eventually, it would apply to all
practitioners.80

Practice Guidelines for DoctorsThe HCACC was required by H.R. 1359 to develop "practice
parameters" for Maryland's doctors, including "strategies for
patient management" and treatment guidance. "Practice parameter" is
an umbrella term that covers such things as clinical "practice
guidelines," practice "protocols," practice "standards," and "care
pathways."

Curiously, members of the state's medical profession were the
driving force behind this provision. For some, it was a way to
preserve a standard of care which they believed to be threatened by
HMOs. Others had a different reason: They wanted to protect
themselves from excessive malpractice litigation by practicing only
state-adopted practice parameters of care. Instead of establishing
practice parameters for lawyers who vigorously pursue medical
malpractice cases, legislators decided to establish practice
parameters for doctors. Not surprisingly, lawyers used the doctor's
reliance on "official" practice parameters as a defense against
allegations of malpractice. Maryland law, however, does not hold
that "practice parameters" adopted by the HCACC are admissible in
such legal proceedings as evidence of care.

Because of the complex and innumerable questions surrounding the
use of practice parameters for doctors, the HCACC created the HMO
Quality and Practice Parameter Development Work Group in 1993. This
group, in turn, recommended that the governor appoint a special
Advisory Committee on Practice Parameters (ACOPP). Governor Parris
Glendening complied with that request in April 1995. Since then,
the special 15-member ACOPP, chaired by a practicing pediatrician,
has studied the process for adopting and using practice parameters.
It is focusing on such areas as cardiology, emergency room
medicine, obstetrics and gynecology, orthopedics, and pediatrics.
Specific areas include childhood asthma, back pain, chest pain, and
cesarean section. The ACOPP looked at how practice parameters are
used and developed, particularly in malpractice litigation, while
developing statewide practice parameters through task forces
consisting of members of various professional societies.81 J. Ramsey Farah, M.D., committee
chairman, wants to change Maryland law so that the HCACC's
guidelines will legally "supersede" all others.82

A Super-Regulatory Agency A broader problem for Maryland's doctors and patients is
whether any government agency should be allowed to determine what
treatment is appropriate without regard to a doctor's professional
judgment about the patient's health. Faced with the persistent
pressure to control costs, the health care bureaucracy is
constantly tempted to develop regulatory mechanisms to ensure that
expenses will not become too great. And their determination is
based on estimates made without reference to market conditions. In
essence, the HCACC could become the government's "gatekeeper,"
controlling patients' access to practitioners, specialists, and
treatments-matters previously determined by doctors and medical
specialists who are morally bound by the Hippocratic Oath to offer
the best treatment for their patients. Beyond the potential
reduction of quality and innovation in clinical practice, such a
bureaucratic process would seriously undermine the fundamental
relationship between doctors and their patients.

The HCACC, like certain employer-based managed care companies,
could come dangerously close to micromanaging medical practice.
Taxpayers and health care professionals are right to wonder how a
state commission can codify medical standards into law or implement
them through regulations when medical science itself is constantly
evolving and undergoing rapid technological advances.

THE LOSS OF PATIENT PRIVACY

Today, Maryland collects medical data without informed patient
consent.83 When a patient is treated
in a hospital, the information collected includes the patient's
unique medical record, including diagnosis, procedures performed,
and prescribed medication, as well as personal demographic
characteristics. Unless this policy is reversed, detailed
information on every patient visit with a doctor or medical
practitioner and any type of hospital treatment (excluding self-pay
patients) will be collected and fed into a database without the
patient's being able to verify its accuracy or give consent.

In February 1995, the HCACC began to collect information for the
database. It began with existing information from insurers with
formal respect for the privacy of individually identifiable
information. Today, the data collection regulations require payers
to submit "encounter information" on all fee-for-service
encounters, on all specialty care capitated encounters, and for
primary care physicians reimbursed under capitated arrangements.
Because there is no practical way to collect data on self-pay
encounters (patients who pay the doctor directly out of pocket),
surveys will be administered to doctors to estimate patients'
self-pay expenditures. Based on these efforts, the commission will
report on expenditures and utilization. Although it collects some
billing data from insurers, the HCACC draws on other data sources
and uses statistical techniques to make estimates in areas where it
cannot collect data directly, such as spending for health costs not
covered by insurance and hospital services purchased by Marylanders
out of state.84 Interestingly, none of
this data collection includes information regarding the "outcome"
of treatment.

In response to legislative concerns in 1996, the commission
eliminated information on the patient's race and limited birth
information to month and year of birth. It also removed the
encrypted patient identifier (generally, the patient's Social
Security number) after the data had been edited. Meanwhile, a
commission work group has been appointed to address confidentiality
issues raised by some legislators under pressure from patients.

In September 1996, the HSCRC announced that it wanted to include
outpatient treatment at hospitals in its database (it has collected
inpatient hospitalization data for about 20 years). The HSCRC would
collect race information and more precise data on patients as well
as information on those who pay for their own care-information the
HCACC previously had agreed not to collect. Directors of the two
commissions say they need the data to help control health care
costs and insist that there is no intent to have one agency collect
what the other has promised not to collect. But an inherent
conflict of interest arises when an agency that is supposed to
guard patient privacy decides that it needs to collect as much data
as possible to control costs. Doctors take an oath to recommend the
best treatment for a patient, not treatment that is the least
costly. With the state monitoring their decisions, however, they
may feel compelled to choose tests or procedures that cost less,
even when the patient is paying for it.

Before long, every doctor, chiropractor, psychologist, and
psychiatrist will be required by the state to report patient visits
to the data bank, and the state will accumulate a dossier on every
resident-a dossier, moreover, that has not been checked for
accuracy by the patient. For each medical claim, an insurance
carrier would be forced to give the state up to 34 bits of personal
information, including a patient's diagnosis and treatment, patient
identifier or Social Security number, month and year of birth, sex,
race, Zip code, the claim control number, date of the visit,
location of the doctor's office, and the doctor's federal tax
identification number.85 The Maryland
Psychiatric Society, among others, has asked the state legislature
to require a patient's approval for the release of such
information. But HCACC director John M. Colmers told a House
committee in 1997 that collecting information only from consenting
patients would "bias" the data and that verifying their consent
would be costly and burdensome to government officials.86

Because medical data represent a valuable commodity, the desire
to have access to this information is growing among HMOs,
pharmaceutical companies, medical equipment manufacturers, and
researchers.87 As noted by Daniel S.
Greenberg, editor of Science and Government Report:

Frolicking teenagers occasionally bust into the computer systems
of the Pentagon, banks and other supposed bastions of electronic
security. If they can do it, what's to prevent intrusions into
computerized medical records by nosy employers, anxious lovers,
professional rivals, crafty salesmen and curious kooks? Actually,
very little. Over the past decade, that's been the consistent
conclusion of a variety of studies by specialists in medicine, law
and computers.88

Even if data were somehow made secure from internal theft, the
very existence of such a government database is a threat to privacy
and personal liberty. Medical diagnoses and treatments are highly
personal, and such information can be misused in destructive and
discriminatory ways. According to a May 1996 Time-CNN
survey, 87 percent of the American people say they want to give
permission before their personal information is included in any
database. Doctors fear that a large number of patients-particularly
patients being treated for sensitive conditions, such as
psychiatric patients-will avoid medical treatment if they cannot be
assured of confidentiality, and that their conditions consequently
will become worse. This will guarantee increased costs of
disability, morbidity, and mortality, and ultimately higher health
care costs for the state as well-another unintended consequence of
Maryland's over-regulation. Yet an insufficient number of Maryland
legislators appear to be concerned about these problems.

An Instrument for Central Planning A key clause in the 1993 Health Care and Insurance Reform
Act holds that information cannot be collected with identifying
information. This means, according to some analysts, that state
officials may not obtain a person's name and address. But they can,
and do, collect a person's patient identification number from his
insurance card. Often, that includes a Social Security number,
which can be used to find out a patient's name, race, age, sex,
driving record, and other personal information.

State health officials advance various arguments to defend the
collection of patient data. Robert B. Murray, executive director of
the Health Services Cost Review Commission, says the purpose of the
data collection is to allow the state to do research and promote
health care cost containment (often a euphemism for price
controls).89 But such a "research"
agenda implies special obligations to the subjects being studied.
If the argument for patient data collection is research, then state
officials should admit their responsibility for ensuring ethical
standards. The most prominent principle is the ethical standard of
obtaining the informed and voluntary consent of human research
subjects. Unless this is done, by the standards of scientific
research on human subjects, the state is violating a deeply held
code of ethics, as well as the democratic principles of personal
privacy and freedom of choice.

If the data were collected with a patient's consent, maintaining
the security of the database should be paramount. Remarkably, HCACC
Director John Colmers admits there is no guarantee of data
security.90 As Paul Clayton, chairman
of the National Research Council panel on medical privacy, has
stated, "Medical records are vulnerable to invasions of privacy in
the computer age, but today there are no strong incentives to
safeguard patient information because patients, industry groups,
and government regulators aren't demanding protection."91

The real objective in collecting patient data appears to be even
greater state control of the health care system, and comprehensive
data collection certainly furthers that objective. Not
surprisingly, HCACC officials want details on every health care
encounter to help them plan and control costs. The database would
help these officials identify practitioners who, in their judgment,
are inefficient providers or guilty of rendering expensive
treatment unnecessarily. Ironically, data generated from insurance
claims forms today are often found to be unreliable for this
purpose.92

House Speaker Casper Taylor is a strong supporter of the state's
data collection effort. "Our main purpose is to keep legislators
focused on the evolution in health care," says Taylor. "It's very
complex, it's a huge percentage of the gross domestic product, and
it changes so rapidly that we want to stay ahead of the curve."93 Taylor opposed patient consent
legislation precisely because it could weaken and unravel the
planning capacity of the HCACC, a key component of the regulatory
regime he helped establish in Maryland. In the policy conflict
between securing personal privacy and facilitating central
planning, therefore, personal privacy is sacrificed.

BENEFITS BY MANDATE As Maryland's legislators
delve into micromanaging health care, they are seriously affecting
the practice of medicine itself. Thus far, the state has imposed at
least 42 specific mandates covering insurance benefits or medical
treatments. The actual number of mandates varies, depending on how
the HCACC defines them and how the state legislature has targeted
the insurance carriers. The rules differ for HMOs, nonprofit
insurance carriers, and group and individual insurance. Plans
serving Maryland's small group market, of course, are subject to
the Comprehensive Standard Health Benefit Plan, which, by the
author's count, contains 54 specific benefit and insurance mandates
(see Appendix). In any case, these mandates
have been driving up health care costs across the state. And last
year, they compromised the ability of Maryland's health companies
to compete for the business of federal employees and retirees
enrolled in the popular Federal Employees Health Benefits Program.
U.S. Representative Albert R. Wynn (D-MD) complained to the
director of the U.S. Office of Personnel Management that OPM's
decision to require Maryland plans to offer the mandated benefits
undercuts those businesses: "Since cost is a critical factor in
health plan choice, this creates a competitive disadvantage for
Maryland-based companies."94

Perhaps the most significant example of micromanagement has been
the state's standardization of benefits in the CSHBP for the small
group market, which went into effect in 1994. The initial benefit
plan included one set of benefits that were applicable across four
delivery systems (indemnity, preferred provider, point-of-service
wrapped around an indemnity delivery system, and HMOs). Each
delivery system had different cost-sharing arrangements. The CSHBP
would provide preventive services for HMOs and protection against
catastrophic expenses for traditional insurance companies (see Appendix).

The 1993 Health Care and Insurance Reform Act governing the
small group market also established a benefit floor (as the
actuarial equivalent of the benefits provided by a federally
qualified HMO), as well as a ceiling on the average rate of the
plan (12 percent of the state's average annual wage). The state's
average wage for 1995 was slightly more than $29,000, making the
cap about $3,500. Yet the average cost of delivery ranged from
$3,615 (indemnity) to $2,738 (HMO). In 1996, the average wage was
$29,560; at 12 percent, the cap was about $3,600, while the average
cost of delivery ranged from $3,888 (indemnity) to $2,743 (HMO).
Projected rates in 1998 are about $4,700 for indemnity to $3,000
for an HMO.95 Indemnity plans are
struggling to survive in this atmosphere.

Some insurance carriers today offer only the Comprehensive
Standard Health Benefit Plan. Consequently, passage of the Health
Care and Insurance Reform Act has caused some employees in Maryland
to lose benefits. Their employers could no longer design health
care plans based on their needs and could no longer offer them the
flexibility of being able to choose between higher deductibles or
co-payments or paying out of pocket for medical expenses.

In addition, some benefits covered prior to 1993 were excluded
in the CSHBP, and some lifetime benefits were reduced. The
legislature added an additional delivery system (a triple option
point-of-service) in July 1996 and a 48-hour hospital stay for
normal deliveries or a 96-hour stay for cesarean section
deliveries. The 1997 legislative session expanded the CSHBP mandate
to the self-employed and enacted four new health insurance
mandates. According to the official HCACC analysis, these new
mandates will have only a 0 percent to 2 percent impact on current
and projected rates.96 Official
government estimates of health care costs tend, of course, to be
conservative.

Initially, more than 60 insurance carriers were selling the
CSHBP to small businesses in Maryland. Many offered HMO and
preferred provider organization (PPO) plans with an out-of-network
option. But insurance carriers reportedly are withdrawing from the
small-employer group market because of premium restraints, the
guaranteed issue requirements for mandated benefits, and the
continuing enactment of additional mandated benefits.97

Some small employers are trying to take advantage of a legal
loophole in the 1993 legislation to avoid state benefit mandates.
They are adopting self-insured plans with high deductibles and
using an administrative firm to process claims, shifting most of
the risk to the insurer.98 In the
course of litigation on this matter, U.S. District Judge Alexander
Harvey ruled on February 23, 1996, that Maryland had overstepped
its authority in issuing new regulations to set limits on companies
that self-insure health plans for their employees, and that these
regulations conflict with the federal Employee Retirement Income
Security Act, which prevents states from regulating self-insured
plans. The Maryland Insurance Commissioner appealed this decision
and lost. On August 9, 1997, the Maryland Insurance Administration
petitioned the Supreme Court to hear the case.99

During the 1997 session, lawmakers passed a bill establishing
medical savings accounts (MSAs) for the small group market to
comply with the federal Health Insurance Portability and
Accountability Act of 1996 (HIPAA). The HCACC is authorized to
establish a modified health benefits plan with a high deductible
for the small group market with MSAs that qualify under the HIPAA,
and is charged with designing and implementing the new plan.100 Insurance carriers in Maryland who
offer the new (high-deductible) modified benefit plan also must
sell the state's Comprehensive Standard Health Benefit Plan. Not
surprisingly, according to an October 1997 report issued by William
M. Mercer, Inc., a large national benefit planning and consulting
firm, MSAs have not been as popular in Maryland as anticipated.101 Moreover, the attractiveness of MSAs
for small businesses, both in Maryland and elsewhere, has been
compromised by the level of regulation imposed by Congress in the
Kennedy-Kassebaum legislation.102

Legislative mandates have other drawbacks beyond increased
costs. They lock in coverage of medical treatments, even if the
progress of medical science and clinical practice renders them
practically obsolete. Legally mandating more benefits means that
workers and their families cannot buy the packages of benefits they
want. But in the heat of the legislative moment, state legislators
seem unable to resist the temptation to legislate mandates. Thus,
in 1997, legislators mandated prostate screening, diabetic
equipment and supplies, and bone mass measurement to guard against
osteoporosis. In 1998, they enacted mandatory coverage for
contraceptives and for treatment of cleft palate: The Senate voted
for the cleft palate measure by 46 to 0; the House, by 126 to 6.103

Although some Maryland legislators have expressed misgivings
about standardizing or specifying the benefits, treatments, or
medical procedures that should be included in private health plans,
bills introduced to address the problems created by such mandates
invariably have failed. One such bill, for example, authorized a
comprehensive review of the social and financial impact of any
proposed mandate and a clear analysis of the public health reasons
for its enactment.104 A committee
formed in 1992 to review mandated benefits met for two years and
then folded. "Everybody was holding tight to their own turf," said
Delegate Adelaide Eckardt (R-37B). "It became very political."105

THE MARCH TO MANAGED CARE

Maryland ranks fourth in the nation in the percentage of its
population (30.9 percent) enrolled in HMOs.106 What the raw numbers do not reveal
is that many people in managed care plans are enrolled not by
personal choice, but by the choice of their employer. It is a
business decision, not a consumer decision.

Expanding Managed Care in Medicaid Maryland aggressively promotes managed care for poor
families. The $2.3 billion annual Medicaid program is the single
largest item in the state budget. With the receipt of a federal
waiver from the Clinton Administration in 1996, all Medicaid
recipients in Maryland are required to enroll in managed care. The
state started enrolling 330,000 additional Medicaid recipients into
six managed care organizations in 1997.

The state legislature has converted Medicaid from a
fee-for-service system to a system with "gatekeepers" who manage
medical referrals. Maryland has required managed care organizations
that want to obtain contracts for Medicaid recipients to create
partnerships with a group of community health centers throughout
the state. This program, called Priority Partnerships, would get
capitation payments from the state-a flat fee per month for each
patient it enrolls. The shift is expected to save nearly $500
million between 1997 and 2001.107 The
new Medicaid-managed care program reportedly is experiencing
difficulties.108

The HMO ProblemThe HMO industry has been hailed by nationally prominent
proponents of "managed competition" as the last best hope for
controlling rising health care costs. But in Maryland, as in
Washington State and many other states, managed care has been
falling out of favor with its erstwhile political champions.
Legislation targeting insurance limitations on direct access to
specialists, prohibiting "gag clauses," and requiring mental health
parity has been enacted already in Maryland. In light of the number
of bills introduced in 1997 targeting them, HMOs will soon have to
deal with additional mandated benefits and "protections for
providers" in billing disputes.

House Speaker Taylor, like many politicians in other states, is
planning to take a "comprehensive look" at the problems posed by
managed care. Senate President Miller is expected to participate in
the review, noting that "Cost is now driving everything in the
health care industry." Senator Bromwell, chairman of the Senate
Finance Committee, is looking into the practices of community
health networks. And the controversial issue of subjecting HMO
medical directors to a state disciplinary review is almost certain
to be resurrected.109

In many respects, the emerging national debate about HMOs and
health care quality has crystallized the internal contradictions of
the employer-based health insurance market. Conflict between
doctors and patients and between employers and employees is
inevitable without patient choice. Managed care companies control
costs by controlling the supply of medical services, establishing
rules by which physicians control patient access to specialists and
treatments. Although managed care firms, particularly HMOs, often
argue that staff physicians are free to recommend whatever medical
treatment or procedure they feel is appropriate for a patient,
managed care organizations nonetheless have established mechanisms
to make sure that costs do not get too high. If doctors are paid a
fixed amount in their contracts and are rewarded for effectively
controlling costs, they have an incentive to make sure that
patients are not steered quickly to an expensive specialist. If
doctors are not careful in controlling what the HMO determines to
be "inappropriate or unnecessary" expenses, they may be dismissed
and replaced by physicians who are better at "managing" patient
care, according to what the HMO thinks is "necessary and
appropriate."

The current controversy about HMOs is the widespread concern
that insurance officials too often are overruling doctors on
treatments they categorize as unnecessary or inappropriate.110 Inevitably, if patients feel they
are denied care, or are blocked from getting a specialized medical
service, they write their state legislator and demand that the
denied treatment be made legally necessary. An explosion of
anti-managed care legislation in the states usually follows. A good
"horror story" virtually guarantees legislative success.

Mid-Atlantic Medical Services Vice Chairman Thomas Barbera
complained to state legislators in January 1997 that they are
clearly confused about managed care: "If you're for us, work with
us. If you're against us, put us out of business."111 Maryland officials like squeezing
the costs out of the Medicaid system, and thus have been aggressive
in promoting managed care for low-income families. But they also
cannot resist punishing managed care organizations with mandates,
making them pay for legally required treatments, and setting the
duration of patient hospital stays, all of which results in higher
insurance rates.112

HOW LEGISLATORS CAN ACHIEVE REAL
HEALTH CARE REFORM

The bureaucratic orientation of Maryland's legislators is
reaffirmed by the 1998 legislative agenda. As of February 11, 1998,
85 health care (and companion) bills and 18 mental health bills had
been introduced in the General Assembly. They range from
legislation that would create new grievance procedures for
insurance subscribers and impose new liabilities for employers and
insurance plans to bills that would expand Medicaid or impose new
benefit mandates. Even more revealing is H.B. 348, a proposal
sponsored by Delegate Marilyn Goldwater (D-16) to amend the
Constitution of Maryland to establish health care as "a fundamental
right" of every Maryland citizen through a Universal Health Care
Coverage Plan.113 The result would
make the state government's takeover of the health care system
complete.

Among Maryland's medical professionals and business and
community leaders, however, there is a growing recognition of the
need to reform the massive health care system. Serious reform will
be possible only if state legislators can start to think outside of
the bureaucratic box and look at every problem not through the
narrow lens focused on tighter regulation, but with a broader
vision of an open and expansive health care market. Policies firmly
grounded in the free-market principles of real consumer
choice and competition are being promoted in many states, and there
is no reason why Maryland's legislators should be chained to past
practices.

The momentum for serious change has begun to build. In 1996, the
Maryland Hospital Association proposed merging the state's three
commissions. The MHA noted that various functions are unnecessary
or duplicative; policies on hospital and patient data collection
are in conflict; inconsistent policies govern doctors and
hospitals; and thorny questions are raised about jurisdiction. The
Department of Business and Economic Development and the Maryland
Economic Development Commission also have recognized the need for
reform that includes both streamlining the regulatory process and
reducing the costs associated with the regulatory system.

In 1997, legislators considered a bill to consolidate the three
independent regulatory commissions under one large umbrella called
the Office of Consumer Health Care Protection114, including the health care functions
of the Maryland Insurance Administration and the Department of
Health and Mental Hygiene. Some legislators, agency heads, and
their appointees who run the current system were authorized to
evaluate the bureaucracies they manage and to be involved in the
development of this agency.

In the 1998 session, the House leadership introduced the
Maryland Health Care Regulatory and Systems Reform Act (H.B. 2). It
failed to pass. It would have consolidated the functions of the
existing commissions into the HCACC. The bill would also have
deleted practice parameters for doctors and eliminated the
certificate of need (CON) for hospice and home health agencies. It
would have retained the proposed physician payment system but would
not have implemented it. As a reform measure, this bill was weak;
it tinkered with the system but did little to end the regulatory
suffocation burdening the Maryland health care system. Indeed, it
made the HCACC into a powerful health care "super-agency."

Maryland has broad experience with the tiresome micromanagement
of health care. A better plan would empower individuals and
families to make health care choices that suit their own needs;
would restore the independence and integrity of the medical
profession; would force insurance companies to compete for
consumers' dollars; and would make them directly accountable for
their performance to the individuals and families they serve,
rather than to corporate benefits managers or bureaucrats who think
they know what is best for all their employees.

1.Empower individuals and families. A
statewide system of tax credits and vouchers for individuals and
families would enable them to purchase the health insurance plans
they want and need. The model for this system could be the 1992
Maryland Consumer Choice Plan initially designed by Speaker Casper
Taylor and broadly supported by both Republicans and Democrats. It
was comprehensive, was budget neutral, and preserved the very best
elements of the health care system. Although the original bill
would require significant modification, including the elimination
of state mandated benefits and the addition of tax relief for both
medical savings accounts and the direct purchase of medical
services, it could serve as a solid starting point for serious
free-market reform.

2.Refrain from expanding Medicaid but expand the
availability of private insurance. Maryland should be a
leader in legislative implementation of the federal KidCare program
enacted by Congress in 1997. Governor Glendening's recently enacted
proposal to expand Medicaid (a welfare program) to cover children
in non-welfare families with an income up to 200 percent of the
federal poverty line is not the best option either for those
families or for the taxpayers. Although the federal legislation
enables Maryland to expand Medicaid to cover low-income uninsured
children, it also allows Maryland and other states to give working
families without employer-based insurance the opportunity to buy
the private health plans of their choice through tax credits and
vouchers. 115

3.Eliminate costly, duplicative, and outdated
rules and regulations. A comprehensive regulatory review
of Maryland's health care system is long overdue. Rules that
undermine quality care and stifle competition should be abolished.
And there is no justification for retaining the counterproductive
certificate of need process or regulation of hospital rates.
Legislators should neither force their fellow citizens into managed
care plans simply because they are bringing in a low income nor fix
physician fees for thousands of medical services based on the
strange economic theory embodied in Medicare's Resource-Based
Relative Value Scale, which determines the economic value of a
commodity by the resources required to produce it rather than the
free interaction of supply and demand.

4.Abolish the independent commissions.
If centralized planning is undesirable, then so are the
institutions that would carry out its functions. That said,
however, several government functions are compatible with a
reformed market for health insurance. These functions-which include
making consumer information available, providing comparative
information on plan performance, establishing consumer protection
rules for the marketing of health insurance, and setting strong
fiscal solvency requirements for plans in the individual and small
group markets-could fall under the Maryland Insurance
Administration.

5.Repeal costly mandated benefits and substitute
solid catastrophic coverage in health insurance. Not
everyone needs or wants coverage for such things as chiropractic
care or in vitro fertilization. But all Maryland citizens
need to be assured they will not lose their home or life savings if
they are hit with catastrophic illness. Legislators should realize
that while coverage for various medical specialties may satisfy
their lobbies, it also drives up health care costs. Higher costs
make insurance less affordable for struggling families who seek
only peace of mind and protection from catastrophic illness.

6.Restore patient privacy in Maryland and shut
down the costly medical care database. Representatives of
the citizens of the Free State should defend their constituents'
personal right to privacy and allow them the freedom to choose a
health care plan that fits their needs. A patient's private medical
information does not belong to the state and certainly deserves
more security than a driving record. Above all else, confidential
medical information should not be transmitted to any public or
private entity without a person's informed and written consent.

CONCLUSION

Few Marylanders, and too few of their elected representatives in
Annapolis, fully grasp the cost, complexity, and reach of
Maryland's health care bureaucracy. In the five short years since
the General Assembly passed the Health Care and Insurance Reform
Act (H.B. 1359), Maryland has put in place a regulatory structure
reminiscent of the most objectionable features of the Clinton
Administration's soundly rejected Health Security Act of 1993.

State legislators should be willing to examine new approaches to
reach the goal of a private-sector health care system that provides
quality care for everyone. That goal can be achieved best by
relying less on the strong arm of regulation and more on the
free-market principles of consumer choice and competition. Doctors,
hospitals, and clinical researchers should be free to use all of
their expertise and to rely on the best facilities, technology, and
medicine available in treating their patients. Health insurers
should create plans based on flexibility and choice so that
individuals and families can buy plans that best suit their
particular needs, not the whims of bureaucrats and industry
lobbyists. This is especially true for the self-employed. A real
market based on consumer choice and competition can accomplish this
goal, but imaginative and responsible political leadership is
essential.

A Sampling of What Is Covered
Under Maryland's
Comprehensive Standard Health Benefit Plan (CSHBP)116

Maryland's CSHBP pays benefits for covered expenses for the
treatment of illness and injury up to the prevailing rate or a
lower rate negotiated with providers. The prevailing rate is the
rate charged by a majority of like providers for the same or
similar service in the same geographic area. Benefits include:

1. Health care facility or hospital inpatient services,
based on the rate approved by the Health Services Cost Review
Commission.

2. Health care provider services rendered for treatment
or surgery.

3. Outpatient health care facility services.

4. Office services for the treatment of illness or
injury.

5. Inpatient mental health and substance abuse treatment
services for a maximum of 25 days per person per year for inpatient
treatment or for partial days of hospitalization treatment.

6. Outpatient mental health and substance abuse treatment
services provided through the Managed Care System for Utilization
Review according to a schedule of allowed benefits.

8. Emergency services with a $35 co-payment that is
waived if the patient is admitted to a health care facility. The
co-payment and co-insurance amount apply toward the deductible and
out-of-pocket limit.

9. Local professional ambulance service to and from the
nearest health care facility.

10. Preventive services recommended in the U.S.
Preventive Services Task Force's Guide to Clinical Preventive
Services, and any other preventive service a federally
qualified HMO is required to offer, including adult periodic health
evaluations, child (through age 17) eye and ear examinations,
pediatric and adult immunizations, and child wellness services.
Deductibles and co-insurance are waived for child wellness services
from birth to age 2, with a $10 co-payment.

11. One mammogram every other year from age 40 to 49, and
one per year from age 50 and over.

12. Home care services when used as an alternative to
hospitalization or inpatient treatment rendered by any other
related institution.

13. Charges made by a hospice for room and board and
other necessary health care services and supplies furnished in a
hospice; part-time nursing care by or under the supervision of a
registered nurse; home health care aide services, nutrition
services, and special meals; counseling services by a licensed
social worker or licensed pastoral counselor; and bereavement
counseling by a licensed social worker or licensed pastoral
counselor for members of the patient's family who also are insured
under this plan (except that visits in excess of 15 for the family
members and/or health care services beyond six months from the
patient's date of death will not be considered covered medical
charges).

14. Durable medical equipment including, but not limited
to, prosthetic devices such as legs, arms, back, or neck braces and
artificial legs, arms, or eyes, and the training necessary to use
these prostheses.

15. Outpatient laboratory and diagnostic services for a
$20 co-payment or the co-insurance percentage, whichever is
greater, but not to exceed the actual charge.

16. Outpatient rehabilitative services rendered by a
licensed health care provider or by a licensed physical therapist,
occupational therapist, or speech therapist to restore function
lost due to an illness or injury. Such benefits will be provided
for a maximum of 60 calendar days of treatment per condition per
year for allowable charges according to a schedule of benefits.

17. Up to 20 chiropractic visits per condition per year;
additional services may be approved through a case management
program for high-cost cases according to a schedule of
benefits.

18. Health care services in a skilled nursing facility as
an alternative to medically necessary inpatient health care
facility services for a maximum of 100 days per year, subject to a
$20 per day co-payment or the co-insurance percentage, whichever is
greater, but not exceeding the actual charge.

19. Infertility services, except those services
specifically excluded. Covered medical charges incurred after the
diagnosis of infertility has been confirmed will be paid at 50
percent.

20. Charges incurred in connection with nutritional
services, six visits per year per condition for the treatment of
cardiovascular disease, diabetes, malnutrition, cancer, cerebral
vascular disease, or kidney disease.

22. Medical food when ordered by a health care provider
qualified to provide diagnosis and treatment in the field of
metabolic disorders.

23. Family planning services including counseling, the
implanting and fitting of birth control devices and follow-up
visits, and voluntary sterilization. The cost of the birth control
devices is not covered.

24. Except for rehabilitative services provided in early
intervention and school services, covered medical charges include
rehabilitative services for children through 19 years of age for
the treatment of congenital or genetic birth defects, including
services for cleft lip and cleft palate, orthodontics, oral
surgery, and otologic, audiological, speech, physical, and
occupational therapy.

28. Controlled clinical trials-treatment that is approved
by an Institutional Review Board; conducted for the primary purpose
of determining whether a particular treatment is safe and
efficacious; approved by an institute or center of the National
Institutes of Health, Food and Drug Administration, the Department
of Veterans Affairs, or the Department of Defense.

1. Dale Snyder is a Severna Park,
Maryland, consultant specializing in issues related to health care
and labor and employment. Robert E. Moffit, Director of Domestic
Policy Studies at The Heritage Foundation and a Maryland citizen,
also contributed to this paper.

3. John Picciotto, general counsel, Blue
Cross/Blue Shield, testimony before the Regulatory Task Force of
the Medical and Chirurgical (MedChi) Faculty of Maryland, October
18, 1997, p. 2, in "Minutes of the Task Force" (cited hereafter as
Minutes of the Task Force). The regulatory bodies are the Health
Care Access and Cost Commission, the Health Resources Planning
Commission, the Health Services Cost Review Commission, the
Department of Health and Mental Hygiene, and the Maryland Insurance
Administration.

4. Passed on April 7, 1993, by a final
floor vote of 45-2 in the Senate and 117-14 in the House (10
abstained).

7. MSAs are available to those who are
self-employed or who work for a company of fewer than 50 employees.
Workers can save tax-free income in these accounts to use as needed
for medical expenses later. However, workers must qualify by buying
a compatible high-deductible health insurance policy.

20. "It might be worthwhile to explore
some type of voucher system to help families afford private
insurance for their children." See editorial, "A New Health Care
Entitlement," The Baltimore Sun, January 25, 1998, p.
2G.

21. Except possibly in a few
specialized cases (for example, cardiac surgery or liver
transplants) in which quality of care depends on high volume.

22. The major exceptions are workers
enrolled in self-insured plans, which are governed by federal law,
or the over-50 employee market. The 1993 Health Insurance Reform
Act established the CSHBP for the two-to-50 employee market; it was
expanded in 1995 to include the self-employed, and again in 1997 to
include staffing firms and employee leasing organizations, or any
type of one-person entity.

27. For specifics of the original
market-based proposal, see Moffit, "Why the Maryland Consumer
Choice Health Plan Could Be a Model for Health Care Reform." See
also Carl J. Sardegna, "How the Maryland Health Plan Is a Model for
the Nation," Heritage Foundation Lecture No. 392, May 27,
1992.

28. This rush to legislate complex
health care policy and create agencies with broad regulatory powers
before learning their full implications was a feature of similar
measures in Washington State and Kentucky.

29. For information on the Washington
State plan, see Robert Cihak, M.D., Bob Williams, and Peter J.
Ferrara, "The Rise and Repeal of the Washington State Health Plan:
Lessons for State Legislators," Heritage Foundation State
Backgrounder No. 1121, June 11, 1997. For information on the
Kentucky plan, see Rachel McCubbin, "The Kentucky Health Care
Experiment: How `Managed Competition' Clamps Down on Choice and
Competition," Heritage Foundation State Backgrounder No.
1119, June 6, 1997.

32. Under a state law, since September
1997, Maryland citizens can block unauthorized access to their
driving records, which include information on their driving
licenses, vehicles owned, and traffic violations. This information
previously was available to the public for a small fee. About 1,000
motorists a day are blocking access. See Paul W. Valentine, "MD
Drivers Rushing to Seal Records," The Washington Post,
December 1, 1997, p. A1.

33. Alex Azar, M.D., in testimony
before the House Environmental Matters Committee, Maryland General
Assembly, March 1997.

49. Lawrence Pinkner, M.D., of the
Maryland Ambulatory Surgery Center noted that Maryland hospitals
generally get 50 percent more in reimbursement than ambulatory
surgery centers because of reimbursements from the Health Care
Financing Administration (HCFA), the federal agency that runs the
Medicare and Medicaid programs. According to Dr. Pinkner, hospitals
use these funds to underwrite their own outpatient centers. The
HSCRC has no control over this process. Cited in Minutes of the
Task Force, p. 2.

78. For a description and critique of
the Medicare RBRVS, see Robert E. Moffit, "Back to the Future:
Medicare's Resurrection of the Labor Theory of Value,"
Regulation, Vol. 15, No. 4 (Fall 1992), pp. 54-63.

95. "Maryland's Small Group Market,
Summary of Carrier Experience for the Calendar Year Ended December
31, 1996," Staff Report to the Health Care Access and Cost
Commission, June 5, 1997, p. 2, exhibit 1.

98. Self-insured plans are exempt from
the jurisdiction of state agencies and do not have to abide by any
of the rules that apply to health plans regulated by the state,
such as financial solvency standards or state-mandated
benefits.

101. "Maryland's Small Group Market,"
p. 7. Mercer recommended that the CSHBP have high deductible
options ($1,500 to $2,250) through a PPO plan, which would not have
a significant impact on the composite rate of the CSHBP.
Policyholders could purchase riders for lower deductibles. To date,
no MSA plan is available for Maryland's small group market.

102. "After a year on the market, one
thing we know is that the HIPAA MSA is far too complex and rigid."
See Patient Power Report, Vol. 3, No. 1 (February 1998), p.
15.

107. Martin Wasserman, Secretary of
the Maryland Department of Health and Mental Hygiene, testimony
before the House Economic Matters Committee, April 1996.

108. "Even as Health Choice is being
touted by state officials as the best way to provide medical
service to the needy while keeping costs under control, those who
provide this care say the 8 month old program is badly broken." Bob
Keaveney, "Mistakes Plague Medicaid to Managed Care," The Daily
Record, Vol. 214, No. 54 (March 7-13, 1998), p. 1.

109. M. William Salganik, "Arm of
Lobbyists Succeeded in Fending Off Reforms in Assembly, but Watch
Out Next Year," The Baltimore Sun, April 13, 1997, pp. D1,
D3.